Judgment :- THANIKKACHALAM, J. In pursuance of the direction given by this Court the Tribunal referred the following question for the opinion of this Court under s. 256(2) of the IT Act, 1961, hereinafter referred to as the Act : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and was justified in deleting the sum of Rs. 35, 277 sustained by the AAC for 1975-76 assessment ?" 2. The assessee is a company carrying on business in the purchase and sale of commodities including steel. Whenever an order is booked for steel the assessee usually takes an amount as advance, which is slightly in excess of the price of the steel at that time. While supplying the steel this amount is adjusted towards the sale price and the balance, if any, refunded to the concerned party. In most of the cases after the concerned party takes delivery of the steel they never ask for the balance amount and this unclaimed amount remains with the assessee. In the previous year 1975-76 the assessee credited its P&L a/c with such amounts aggregating to Rs. 35, 277. However, while filing the return of the income for the asst. yr. 1975-76, the assessee claimed that the amount should not be taken as the income of the assessee since according to it, the liability to pay the amount still existed. The ITO did not accept the assessee's claim and he assessed the amount of Rs. 35, 277 under the provisions of s. 41(1) of the Act. According to the ITO, the assessee had obtained some benefit in respect of the liabilities by way of remission or cessation thereof. 3. The aggrieved assessee filed an appeal before the AAC, who held that the provisions of s. 41(1) are not applicable to the facts of this case. He upheld the addition on a different ground. According to the AAC, the amount in question constituted part of the trading receipts and is, therefore, liable to tax. The assessee thereafter went in appeal to the Tribunal. The Tribunal held that the ITO was not justified in invoking the provisions of s. 41(1) of the Act and allowed the assessee's appeal on that sole ground. 4. The point for consideration is : "Whether, in the assessment of year 1975-76, the sum of Rs. The assessee thereafter went in appeal to the Tribunal. The Tribunal held that the ITO was not justified in invoking the provisions of s. 41(1) of the Act and allowed the assessee's appeal on that sole ground. 4. The point for consideration is : "Whether, in the assessment of year 1975-76, the sum of Rs. 35, 277 representing the unclaimed credit balance assumed the character of trading receipt as a result of the said amount having been credited in the P&L a/c of the assessee ?" 5. According to learned standing counsel for the Department, the advance amount received by the assessee for the sale of the steel would bear the character of trading receipt. The unpaid balances in the hands of the assessee for several years was appropriated and transferred to the P&L a/c in the account year relevant to the assessment year under consideration and, therefore, as a trading receipt the said amount is taxable in the assessment year under consideration. It was further submitted that the fact that there is liability on the part of the assessee to return these excessive amounts to the customers is not relevant for determining the character of these amounts. According to learned standing counsel, the amount received by way of deposit and amounts received as advance are two different categories. It was, therefore, pleaded that under s. 28 of the Act, when the initial character of the amount received by the assessee is trading receipt, the consolidated amounts transferred to the P&L a/c in the accounting year relevant to the assessment year under consideration is taxable as such. In order to support his contentions learned standing counsel relied on various decisions which we will consider at a later stage. 6. On the other hand, learned counsel appearing for the assessee submitted that his unpaid balance amounts are liable to be refunded to the customers. Therefore, the liability is not yet discharged and it still continues. Hence, the unpaid balance amounts cannot be considered to be trading receipts. Even if those unpaid balance amounts are considered to be trading receipts, the amounts are relating to various earlier assessment years and, therefore, the amounts should be spread over and taxable only in those assessment years and not in the present assessment year under consideration. Hence, the unpaid balance amounts cannot be considered to be trading receipts. Even if those unpaid balance amounts are considered to be trading receipts, the amounts are relating to various earlier assessment years and, therefore, the amounts should be spread over and taxable only in those assessment years and not in the present assessment year under consideration. According to learned counsel, simply because those unpaid balance amounts were transferred to P&L a/c in the accounting year relevant to the assessment year under consideration, the entire amount cannot be assessable in the present assessment year under consideration. In order to support these contentions learned counsel for the assessee also relied upon various decisions which we will consider at a later stage. 7. The fact remains that in the asst. yr. 1975-76 the ITO noticed that the assessee had credited its P&L a/c with unclaimed credit balances amounting to Rs. 35, 277, in the memo for adjusting the income for income-tax purposes claimed deduction of the sum as an untaxable item. The assessee's authorised representative placed before the Tribunal a breakup of this amount of Rs. 35, 277 which includes a sum of Rs. 24, 700 from the assessee's account of the private ledger, representing unclaimed balance of earlier years transferred from the sales ledgers. The other amounts represented the unclaimed credit balances in the sales ledgers of the Madras, Coimbatore, Trichy and Madurai branches of the assessee-company. He also placed before the Tribunal a list of persons or companies in whose names the credit balances as on 31st Dec., 1974 stood in the Madras branch sales ledger. With these materials it was submitted that on no account this could be said to be a part of the sale proceeds or it could be said to represent liabilities to those parties. 8. In the case of unclaimed balances, the taxability of the amount depends upon the nature of the receipt. According to the Department, the amount received by the assessee is a part of the sale proceeds of steel and that character is retained by the amount for ever. Therefore, the amount of Rs. 35, 277 representing the unclaimed credit balances which were brought to the credit side of the P&L a/c is really a part of the sale proceeds of steel by the assessee. 9. Therefore, the amount of Rs. 35, 277 representing the unclaimed credit balances which were brought to the credit side of the P&L a/c is really a part of the sale proceeds of steel by the assessee. 9. According to the facts arising in Punjab Steel Scrap Merchants' Association Ltd. vs. CIT the assessee-company, which was a dealer in scrap iron, received from its constituents a deposit in round figures in advance for the supply of scrap they required. If the price of the scrap iron delivered was more than the amount deposited, the assessee recovers the excess. When the price of scrap iron delivered was less than the amount deposited and a surplus remained with the assessee, the constituents did not sometimes claim the amount of excess and that amount remained with the assessee to their credit. Unclaimed credit balances over 3 years old were transferred by the company to its P&L a/c and dividends were declared out of the net profit in the account. The amounts so transferred to the P&L a/c for the previous years relevant to the asst. yrs. 1954-55 to 1956-57 were Rs. 2, 080, Rs. 10, 692 and Rs. 1, 993 respectively and the question was whether these amounts were in the nature of trading receipts. According to the Punjab High Court, these amounts were payments towards price of scrap iron which was to be supplied to the constituents. They were, therefore, essentially trading receipts of the nature of revenue and liable to the included in the computation of assessee's taxable income. 10. According to the facts arising in Badri Narayan Bal Kishan vs. CIT the assessee is a firm. It carries on business as commission agents in rice. During the previous year relevant to the asst. yr. 1958-59, it collected a sum of Rs. 5, 702 and in that relevant to the asst. yr. 1959-60 a sum of Rs. 21, 316 as and by way of sales-tax from customers to whom such sales were made on commission. The assessee made these collections on sales made outside the State apprehending that it may be made liable for payment of such sales-tax on the imposition of Central Sales-tax on inter-State trading from 1st July, 1957. However, the collections so made from the customers credited to a separate account called the deposit account and not treated as part of the sale proceeds. However, the collections so made from the customers credited to a separate account called the deposit account and not treated as part of the sale proceeds. According to the assessee the understanding between it and the customer was that if sales-tax was ultimately demanded from the assessee, the payment would be made to the Government accordingly, but, if it was not so demanded, the amount would be refunded to the customers. Since, however, neither a demand was made, nor had the assessee paid the amount to the Government and the amount was also not refunded to the customers in any of the previous years. On these facts on a reference the Andhra Pradesh High Court held "that the principle applicable in the case of deposits or security deposits is that where it is part of the price or part of each transaction, whether the amount is returnable or not, it is deemed to be a trading receipt. But, if the amount received has nothing to do with the transaction as such or is no part of the price but is only received for the due performance of an obligation or a service, then it is not considered as a trading receipt but is akin to money borrowed". 11. While the assessee collected amount by way of sales-tax from customers and credited it to a separate account called the deposit account, the Andhra Pradesh High Court was of the view that the amounts were part of every transaction and formed part of the price charged by the assessee. The amounts were consequently assessable as trading receipt. According to the facts arising in the case of CIT vs. Batliboi & Co. P. Ltd. the assessee was a dealer in machinery, used to take deposits from intending purchasers of machinery, which were later adjusted towards the purchase price of the machinery sold. The surplus deposits if any were not generally refunded to the customers. Occasionally, the assessee was unable to refund some of the excess deposits for various reasons and in the relevant assessment year such excess deposits amounting to Rs. 17, 691 which the assessee was unable to refund to its customers were transferred to the P&L a/c. The assessee claimed that the sum of Rs. 17, 691 did not represent a taxable receipt. 17, 691 which the assessee was unable to refund to its customers were transferred to the P&L a/c. The assessee claimed that the sum of Rs. 17, 691 did not represent a taxable receipt. On these facts on a reference the Bombay High Court held that: "the excess deposit was not held by the assessee for the benefit of the depositors. The deposit was in respect of a specific transaction of sale and was adjusted towards the purchase price of the machinery sold and had a close connection with the transaction of sale. Since the assessee transferred the excess deposit remaining in its hands to the P&L a/c, it was assessable to tax as a trading receipt in the hands of the assessee." So also the Bombay High Court in the case of Protos Engineer Co. P. Ltd. vs. CIT while considering the provisions of s. 28 of the Act, held that: "the benefit that had arisen to the assessee by appropriation of the excess commission or advance receipts against supplies, etc., received in earlier years and not credited to the P&L a/c in those years and had a close and direct nexus with the business of the assessee and definitely amounted to a benefit to the assessee. It had the result of not only reducing the trade liabilities of the assessee and enhancing its profits of business during the year but also increasing its capital. The benefit received by the assessee by appropriation of this amount to its P&L a/c was definitely convertible into money and assessable under s. 28(iv) of the Act". 12. According to the facts arising in the case of K. M. S. Lakshmanier & Sons vs. CIT, Etc. the assessees were the sole selling agents for yarn manufactured by a textile mill and they distributed yarn to customers under forward contracts in respect of which they obtained from their customers advances of moneys were adjusted towards the final payment of purchase price at the time of delivery of goods. The assessee demanded from the customer as security deposit a certain sum which was to be held by them as security for the due performance of the contracts by the customers so long as his dealings with them by a way of forward contracts continued. The assessee demanded from the customer as security deposit a certain sum which was to be held by them as security for the due performance of the contracts by the customers so long as his dealings with them by a way of forward contracts continued. The price was to be paid by the customers in full against delivery in respect of each contract without any adjustment out of the deposit which carried an interest of 3% per annum. A question arose whether the amounts received by the assessee constituted "borrowed money" within the meaning of r. 2A of Sch. II of the EPT Act, 1940. While answering this question the Supreme Court held that the deposit received by the assessee from 5th May, 1944, to 14th Feb., 1945, partook more of the nature of trading receipts than of security deposits and, therefore, the sums received during this period could not be regarded as borrowed money for the purposes of r. 2A". 13. According to the facts arising in the case of CIT vs. A. V. M. Ltd. the assessee carrying on business as a distributor of cinematograph films gave positive prints of films to distributors who exhibited them in the cinema houses. Apart from the consideration received, the assessee collected from the distributors security deposit for the due fulfilment of the terms and conditions of the agreement (between the parties and on the due fulfilment of the terms of the agreement) the amount of deposit was refunded. The deposit was sometimes adjusted against the amounts payable by the distributors because the distributor did not send the collections but directed the assessee to set off or adjust the security deposit against his overdue collections. As the assessee had lost touch with persons who had made the deposits the assessee in due course appropriated the excess available with it and credited it in its P&L a/c. On these facts this Court held that: what the assessee did in this case was that when it had waited for a sufficiently long number of years, it called it a day and appropriated of misappropriated the deposit if that is a better description of what was done with the unclaimed deposits. This was done by means of appropriate book entries in the books of account of the assessee. It needs some explanation as to how this was done in the books. This was done by means of appropriate book entries in the books of account of the assessee. It needs some explanation as to how this was done in the books. When initially a deposit is received, the assessee gives credit to the film exhibition for the amount and debits the deposit account. While actual collections from the theatres, when sent by the film exhibitor, are trading receipts of the assessee and even advances towards collections must also be treated as trading receipts, a deposit, although it is a kind of receipt of money, cannot be regarded as a trading receipt. Therefore, the amounts representing the balance of the security deposit received by the assessee during the course of its business from its exhibitors and credited in the accounts for the assessment year in question were not taxable. Thus, a plain reading of the judicial pronouncements cited supra would go to show that the unpaid balance amount credited in the P&L a/c would partake the character of trading receipts. 14. Learned counsel appearing for the assessee submitted that in as much as the unpaid balance amounts related to the earlier assessment years and simply because they were brought into the P&L a/c in the accounting year relevant to the assessment year under consideration the entire amounts are (not ?) taxable in the assessment under consideration as trading receipts. 15. According to the facts arising in the case of CIT vs. Planters Co. (P) Ltd. sales-tax collected by the assessee on its sales of the tea during the years 1956 to 1959 was credited to a "sales-tax reserve account" and payments of sales-tax were debited to this account. The excess which was kept in the said account between 30th June, 1960, and 30th June, 1969, was credited to the P&L a/c as on 30th June, 1970. On these facts a question arose whether the excess sales-tax referred by the assessee during the earlier years and transferred to the credit of P&L a/c on 30th June, 1970 constituted trading receipt of the years in which it was received and consequently it would be assessed to tax in the year of assessment for 1971-72. While answering this question this Court held that the sales-tax collected was a trading receipt of the year in which it was received. While answering this question this Court held that the sales-tax collected was a trading receipt of the year in which it was received. The fact that it was credited to a separate account did not in any manner affect its quality or character as a trading receipt. Once the quality of these receipts was determined it would have been assessed only in the year in which it was collected. The assessee would be entitled to claim deduction for the amount paid as sales-tax and the deduction would have to be allowed in the year in which the liability was created or the amount paid to the sales-tax authorities as the case may be. The result of the transfer to the P&L a/c was merely to close the particular account but did not in any manner affect either the rights of the assessee or its obligations to the tax department. This entry could not transmute a trading receipt of an earlier year into income of the year in question as there would be no accrual of any income by reason of the transfer entry being made. Omission to tax them in the earlier years afforded no ground for taxing them in 1971-72. The amounts, therefore, could not be taxed in the year 1971-72. 16. According to the facts arising in the case of CIT vs. Spunpipe & Construction Co. (Baroda) Pvt. Ltd. the assessee supplied certain items to the Government during the previous year relevant to the asst. yr. 1959-60. The assessee received amounts in excess of the price to the extent of Rs. 31, 695 and placed it in suspense account, where it remained till it was brought to the P&L a/c in the accounting year relevant to the asst. yr. 1971-72. During the previous years relevant to the asst. yrs. 1965-66 and 1966-67, the assessee sold certain items to the State Government and charged sales-tax thereon at the rate of 3-1/4% instead of 2-1/8% chargeable in law. The assessee placed the surplus amount of Rs. 11, 523 in the suspense account, where it continued till it was brought to the P&L a/c in the accounting year relevant to the asst. yr. 1971-72. On these facts a question arose whether the Tribunal was right in law in holding that the amount of Rs. 31, 695 and Rs. 11, 523 cannot be treated as the income of the assessee. yr. 1971-72. On these facts a question arose whether the Tribunal was right in law in holding that the amount of Rs. 31, 695 and Rs. 11, 523 cannot be treated as the income of the assessee. While answering this question the Gujarat High Court held that if the amounts of Rs. 31, 695 and Rs. 11, 523 were received by the assessee as trading receipts, the mere facts that the said amounts were transferred to the suspense account for a few years and were later transferred to the P&L a/c could not alter the character of the receipt. The amounts could have been taxed in the assessment year in which they were received. The Department having failed to do so, the amounts would not be assessable in the asst. yr. 1971-72". According to the case of State Bank of India vs. CIT the Supreme Court, while considering whether the increase in value of the foreign currency was incidental to the banking business carried on by the assessee is his capital or revenue receipt, held that: "it is well settled that the way in which the entries are made by the assessee in its books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee might, by making entries which were not in conformity with proper principles of accountancy, have concealed profit or showed loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other". 17. According to the facts arising in the present case, the unclaimed balance of deposit made by the customers come to Rs. 35, 277 which includes a sum of Rs. 24, 700 from the suspense account of the private ledger representing unclaimed balance of the earlier years transferred from sales ledgers. The other amounts represent the unclaimed credit balances in the sales ledgers of Madras, Coimbatore, Trichy and Madurai branches of the assessee-company. Thus, the unclaimed balance of deposits in the earlier years were brought into the P&L a/c in the accounting year relevant to the assessment year under consideration. The assessee also pleaded before the authorities that this amount related to the earlier years and, therefore, it cannot be taxed in the assessment year under consideration, even though the character of the said amount is trading receipt. The assessee also pleaded before the authorities that this amount related to the earlier years and, therefore, it cannot be taxed in the assessment year under consideration, even though the character of the said amount is trading receipt. The ratio adumberated in the above cited two decisions would go to show that simply because the earlier years' balance amounts which were kept in the suspense account alone were brought to the P&L a/c in the year under consideration, the entire amount cannot be taxed in the assessment years under consideration. If those amounts relating to the earlier years were not taxed in those years, it is not possible for the Department to tax the entire amount in one year, i.e., the present assessment year under consideration merely on the basis that the entire amounts were transferred to the P&L a/c in the assessment year under consideration. Accordingly, we answer the question referred to us in the affirmative and against the Department.